MILWAUKEE—Rich Matiszik loves this city, with its lively festivals, soaring ballpark and miles of lakefront. But the struggling schools have him weighing a move to avoid private high-school tuition for his two kids.

"That's $100,000 I don't have for retirement," said the 48-year-old fire-department captain.

But Mr. Matiszik can't leave Wisconsin's largest city without quitting his job under a local law in effect here...